Key Issues Pertaining to South Africa’s Growth Strategy

South Africa’s current growth rate, and trajectory, is weak. Global circumstances, notably our exposure to continued European stagnation and financial market tapering by the US Federal Reserve Bank, are partly to blame. Structural conditions, particularly continued commodity dependence, weak manufacturing capacity, skills shortages, and infrastructure bottlenecks, also play a role. While problems with macroeconomic policy, specifically an expanding fiscal deficit driven by recurrent expenditures, are emerging, these do not currently seem to be insurmountable. Overall, the weak growth trajectory primarily reflects microeconomic policy weaknesses or misdirection, resulting in mounting investor angst. This disquiet is greatly aggravated by militancy in the trade union movement, which has surged in recent months.

Clearly deficient external demand cannot be decisively addressed domestically. Nonetheless, more could be done to open new markets to non-traditional South African exports, through pursuing free trade agreements and deeper regional integration in Africa. The intensifying crisis of the multilateral trading system, and likely escalation of mega-regional trade negotiations[1] amongst key developed and developing markets, sharpens the possibility that our exporters will increasingly be disadvantaged in key markets. But a concerted response to these developments is unlikely since it would require openness to reciprocal trade liberalization, a policy stance manifestly lacking in South Africa.

Structural deficiencies are a function of economic evolution over time, and at least in my opinion are not easily amenable to government-driven solutions, with the exception of addressing infrastructure blockages, which are, correctly, a core focus for the South African government. Nonetheless, more could be done to leverage existing comparative advantage in minerals and agricultural commodities exports, particularly through confidence-building measures in those sectors for domestic and foreign investors.

However, a plethora of recent policy initiatives point towards tightening or restricting access to the South African market, particularly, but not only, for foreigners. These include, inter alia, proposals to:

Oblige foreign (private security providers) and domestic (farmers) to yield 51 percent of the shares in their companies to black South Africans;

Obligate all energy companies wishing to prospect for new discoveries to cede a 20 percent ‘free carry’ share to the South African state, which would have the option to raise this share to 80 percent at prices ‘to be agreed upon’;

Tighter controls on visa regulations including obtaining work permits for skilled personnel.

The common thread running through these initiatives is an increasingly inward-looking, national security – oriented, mindset in the governing tripartite alliance[2]. This mindset is reinforced by political developments, notably the ANC’s diminishing, albeit still dominant, electoral fortunes; the rise of the militant populist and largely youth-based political party – the Economic Freedom Fighters; and the seemingly imminent formation of a Workers Party by the most militant and largest trade union[3] in COSATU. Reinforcing this political economy are increasingly vocal voices within the black business community and broader society agitating for more redistributionist policies, and protection-minded business interests that have coalesced around the SACP trade minister, who is inclined to deliver on their desires. These developments are underscored by the ANC’s failure to deliver on promises of jobs and significant economic growth, resulting in finger-pointing at the economic model in place.

Against this broad, disparate constellation of interests there are very few voices speaking in favour of market opening and reform – the key normative foundations of G20 summitry, albeit observed in the breach by other G20 states. Consequently South Africa’s growth strategy is not likely to align with the thrust advocated by the Australian chairmanship of the G20 summit process; indeed the reverse is foreseeable and the country may assume an increasingly oppositionist stance such as [4]its recent alignment with the Venezuela-Cuba led ALBA group in the World Trade Organization’s trade facilitation agreement debacle.

Nonetheless there are some counter-trends, which offer hope for market reform advocates such as myself. The infrastructure-spending plan, if properly implemented, will lead to significant de-bottlenecking of the economy, which would be growth promoting. Second, there is rhetorical focus in the ANC on implementing the National Development Plan (NDP) – a centrist growth agenda – although implementation is subject to the political economy described above. Furthermore, various state agencies are taking concrete actions that could be growth promoting, inter alia: ramped up manufacturing development incentives; elaboration of a more focused special economic zones programme; the digital broadcast migration programme; and the agricultural policy action plan. Total envisaged spending in the next three years on these items alone is expected to amount to R38,3 billion, a substantial sum.

Flowing from this analysis, and with due caveats regarding the likelihood of these measures being implemented, I recommend the South African government take the following concrete steps to boost and sustain economic growth:

Faithfully implement the NDP, and rapidly;

Similarly implement the various growth enhancing plans put forward by various government departments;